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Towards a Well-Founded Valuation of Managerial Fleibilities in IT Investment Projects - A Multidisciplinary Literature Review

By Bernd Heinrich, Marcel Müller, Sebastian Stoeckl and Steffen Zimmermann

Abstract

In the IS literature standard financial option pricing models are predominantly used to value real options embedded in uncertain IT projects. Based on a multidisciplinary literature review, we discuss the assumptions implicit in the prevalent Black-Scholes model and argue for relaxed assumptions that better represent characteristics of uncertain IT projects. This is followed by a discussion of real option approaches from the fields of IS, Finance, and Economics in respect of their compliance with these relaxed assumptions. Findings are: (I) by relaxing the assumptions, the option value and project selection decisions are liable to change; (II) several approaches from Finance and Economics literature better comply with our relaxed assumptions compared to existing approaches in IS literature; (III) no existing real option approach complies with all relaxed assumptions. Adapting and enhancing approaches of other disciplines could be a push towards a well-founded valuation of real options embedded in IT projects

Topics: 330 Wirtschaft, ddc:330
Publisher: 'Elsevier BV'
Year: 2015
DOI identifier: 10.2139/ssrn.2575521
OAI identifier: oai:epub.uni-regensburg.de:32770

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